How to handle unpaid invoices & avoid late payments in the future

Regardless of the size of your business, unpaid invoices are frustrating and can quickly become more than just an inconvenience. The effects of multiple clients paying late, or in some cases, not at all, will be detrimental to the success of your business.

Unpaid invoices interrupt your cash flow, which limits the amount of money you will have to keep your business up and running. Imagine if even a quarter of your clients paid exceptionally late – you would likely end up with dry spells in your bank account, meaning you’ll be unable to pay your employees and suppliers on time. This can be the cause of a rapid decline, affecting the reputation of your business and quickly building up a tower of debt.

My customer hasn’t paid: what can I do?

1. Check the facts
Have you invoiced the right person? It may be that whoever requested that the job be carried out is not the same person that will be providing payment. Are all of the details provided on the invoice correct? It may often be the case that a simple error is all that is causing the delay.

2. Contact the customer

Money tends to be a topic that many business owners find difficult to discuss, particularly in the early days. You might feel rude chasing customers for payments, but the reality is that it’s all part of good business. You have provided a service and so should be paid for doing so.

Government guidelines suggest that, unless you specify a set date, clients have 30 days to pay an outstanding invoice. Although there may be a valid reason for your invoice to have been left unpaid, you do have the authority to add interest to unpaid invoices after this date. Get in touch with your client to politely query whether or not they have received your invoice and whether there are any problems.

3. Identify why the customer has not paid: Do they have a complaint?

Has the customer got a legitimate reason for not paying you? Do they have a complaint to make? Although you may feel that they should have contacted you beforehand, it is worth establishing the reasons they have for not paying. Handling the issue in this way will offer you an opportunity to resolve any issues and will only reflect well on you as a business owner.

Escalating the issue to court

Hopefully, you will have resolved the issue by contacting the client and having an open and honest conversation with them. If, however, you have not managed to make contact with your client and they are dodging your calls, or are simply unwilling to move forward with making a payment, it may be necessary to take things to Court.

Start by issuing a 7-day payment request before taking any further action

Send a short, formal letter which states that the client has seven days to provide payment else further action will be taken. This may be the nudge they need to get the payment to you, as nobody wants to be taken to Court.

If the amount is less than £10,000, you can submit a small claims court N1 form

Whether you apply for a money claim online or by paper, you will have to pay a small fee (which is dependant on the size of the claim) to take somebody to Small Claims court. This process is designed to be simple, and you should be able to navigate through it without costly legal assistance.

If the amount owed is greater than £5,000 Then Issue a statutory payment demand

For larger sums of money owed, it would be worth making a statutory payment demand, which is a formal way of asking for a debt to be paid. This requires no court involvement but is a method often used by the likes of HMRC to collect their outstanding payments.

How can I avoid unpaid invoices In the future?

Agree on the necessary terms of your agreement upfront, before carrying out the work. Establish how long your customers have to pay and what will happen if they don’t pay on time.

2. Make It easy to pay you

Try to make the payment process as simple as possible, offering clients the opportunity to pay using various methods including cash, card, cheque and even through sites such as Paypal.

3. Automate the process

Paperwork can quickly become overwhelming, taking up lots of your time. Why not take a look at an organisation which can make things simpler for you, such as www.yourtradebase.com.

This helpful tool can not only help you to create professional invoices but also help you to organise them and keep all the information safely in one place. You will be able to email invoices over and view when a client has opened them, so you know they have arrived safely. The system will even alert you when an invoice is overdue, so you remember to give the client a gentle nudge.

Available to use on any device, you can create your invoices from any location with just a few quick clicks.

Our exclusive member’s area provides traders with valuable information and documentation, from pricing guidelines to templates for customer contracts and much more. Not a member? Get in touch with us today to find out how joining us can benefit your business.

Please note the advice in this article does not constitute legal guidance. We would always recommend speaking to your legal representative in the first instance if you are experiencing issues that we have outlined here.

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